Securities Industry and Financial Markets Association (“SIFMA”), its Asset Management Group (“SIFMA AMG”), Managed Funds Association (“MFA”), Futures Industry Association (“FIA”), FIA Principal Traders Group (“FIA PTG”), International Swaps and Derivatives Association (“ISDA”), Alternative Investment Management Association (“AIMA”), The Institute of International Bankers (“IIB”) submitted a request to extend the implementation dates for the Clearing Rule by, at a minimum, 12 months, to allow the SEC time to consider and address several critical issues requiring resolution and for the industry to have sufficient time to develop and implement clearing.
Association members are concerned that, without an extension, the success of the transition to central clearing will be seriously compromised and will inevitably lead to disruptions in the cash and repo markets in Treasury securities to the detriment of the financial system. Additional time is needed to consider how to resolve critical issues both for the further development of the cleared market and so that market participants may successfully implement the Clearing Rule in an efficient manner. These issues include:
- SEC rule clarifications with respect to the treatment of mixed CUSIP tri-party transactions;
- SEC rule clarifications as to the scope of the inter-affiliate exemption; including, in particular, expanding the exemption to allow for internal liquidity and collateral management;
- SEC-registered fund rules that effectively require double margining for cleared repos;
- SEC rule clarifications with respect to the ability of firms to pre-fund customer segregated margin with USD (and not only UST);
- SEC rule clarifications with respect to the ability of firms to take debit in the formula even if client does not pay margin back within 24 hours;
- SEC rule clarifications as to the overall extraterritorial scope of the rule, and necessary SEC engagement with overseas regulators to ensure the ability for global participants to clear cash and repo transactions;
- SEC to seek public comment and fully consider the clearing application of the CME Group, as well as ICE and other clearing houses, and the availability of the crossmargining model to facilitate cross-product netting between repos and futures;
- Standard documentation and supporting legal opinions are finalized for the efficient customer on-boarding and development of robust liquidity in cleared Treasury markets; and
- Bank capital issues under the existing capital framework need to be resolved for the development of the “done-away” market structure to confirm similar treatment currently applicable to the “done-with” market structure.
